People often think negatively about the bankruptcy process. While arriving at bankruptcy isn't anyone's first choice for their near-term financial future, it isn't the end of the world. Bankruptcy lawyers will even tell you that the process can be a golden opportunity to get your financial situation on track. You can do these four things to make the most of bankruptcy.
File for the Right Type of Bankruptcy
You have two possible options depending on your circumstances. A person can go through Chapter 7, a liquidation process where the court sells all of their non-exempt assets and uses the proceeds to pay part of what's owed to the creditors. The second option is restructuring. Individuals almost always restructure under Chapter 13, and most businesses restructure under Chapter 11.
Which path is the right one for you? If you have few or no secured debts, such as a mortgage or car loan, liquidation likely maximizes your post-bankruptcy situation. Conversely, someone who wants to hold onto their house, car, or business might aim for restructuring. Before you decide, meet with a bankruptcy attorney to discuss the pros and cons of how each applies to your situation.
Claim Every Valid Exemption
If you pursue liquidation, you'll have the opportunity to ask the court to exempt some of your assets from sale. Federal law installs a base of exempt assets, such as clothing, a reasonable vehicle to get around, furniture, and other necessities. Your state's laws, though, may offer more exemptions. Some states even have a flat asset value for exemptions where you could theoretically exempt a bag of diamonds as long as the stones and other assets fit under the cap. Consult with a bankruptcy lawyer to learn what exemptions are available in your state.
Learn from Credit Counseling
The bankruptcy code requires a petitioner to take credit counseling courses and propose a non-binding repayment plan afterward. It is just part of the process, but you can still take advantage of it. Suppose no one ever properly taught you how to calculate the long-term cost of a loan based on the interest rate. Credit counseling covers that, so take the opportunity to develop a tool for your post-bankruptcy life.
No one wants to fail to include an asset, a debt, or the name of a creditor in the petition. Be thorough about identifying every creditor and what's owed. Anyone not named in the petition can still pursue collection, so stop them in their tracks with thoroughness.
Contact a bankruptcy attorney for more information.